Business Planning for a
Successful Project
Jason Karszes, Jeff Perry,
Cathy Wickswat, Kyle Getty, Joan Petzen
Why Modernize?
• Today’s focus is modernizing your dairy
business
• Modernizing usually involves
– New investment
– Changes in how things are done
• Why do you want to modernize is critical in
determining what plan is best for you
Factors Driving Change on
Dairy Farms
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Increasing input and output price variability
Increasing profit variability
Increasing capital investment levels
Inflation impacts
Processor/handler expectations
Family expectations
Management focus
Changes Occurring on Farms to
Offset These Factors
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Higher labor efficiency
Higher milk production per cow
Specialization
Lower Costs
Larger production units
Value added
• All of these being pursued to maintain or increase
the ability of the business to meet family goals and
expectations
Current Farm Performance
• What is the current farm performance?
– Milk production
– Labor efficiency
– Capital efficiency
• Is the farm generating enough profitability?
– To maintain or improve ability to meet family
goals
– To build retirement for senior/current
generation
Current Farm Performance
• What does your business analysis say about your
business?
– Cornell Dairy Farm Business Summary
– Farm Credit Large Herd or Dairy Profit Analyzer
– Dehm & Associate’s DairyDash Board
• Do you feel that there is profit un-captured due to
current way of doing things?
• What does the business assessment indicate?
Long Term Farm Direction
• What is the mission/vision for the farm and the
family?
• What are the current operator's plans for
retirement?
– Liquidate the business at retirement
– Sell the business to a next generation and have the
business continue?
• When does the current operator(s) want to retire?
• What is the long term strategic business plan for
the business?
May Want to Modernize if:
• Leaving profit on the table
• Below industry standards on key
benchmarks
• Not retiring for several years
• Transferring the business to the next
generation
Resources
• Business Analysis Programs
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Cornell Dairy Farm Business Summary
Farm Credit Dairy Business Analysis
Dehm & Associates Dairy Dashboard
Cornell Dairy Profit Monitor
Others
• Advisory Teams
• Business Consultants
• Agri-service representatives
Project Business Planning
• After making the decision to modernize –
What is next? – Key questions
– What should be done?
– In what order?
– What is needed to complete?
• To help with these questions, develop a
project business plan to serve as a blue print
Why Develop A
Project Business Plan?
• Organize your thinking!
• Convince yourself and
your family that it is a
good direction
• Ask the hard questions and make sure the
dream can become reality!
A plan is a state of mind,
not a document to collect dust!
Key Questions to Answer
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What needs to be done?
When will it be done?
Who will be doing it?
What needs to be accomplished first?
What will the capital costs be?
What impacts will there be on daily
operations during the change?
Key Questions to Answer
• What changes in operations need to be
considered for when plan is complete?
• What external things can impact the ability
of the business to complete the plan?
• What is the risk to the business if plan is not
implemented successfully?
• What other resources are needed for the
completion of the plan?
Project Business Plan
Key Reasons to Develop
• Convince yourself that the change is a good one
• Convince other family members to support effort
• Utilize to communicate to other parties to enlist
their support for the change
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Employees
Banker
Builders
Consultants
Agri-service personnel
Others
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A “Formal” Business Plan Model
Executive summary
Current business description
Historical performance
Capital costs with formal bids
Transition year budgets
Budgets for when fully implemented
Sensitivity analysis
Other supporting documents
Summary
Project Business Plan
Utilizing with the Lender
• Most people not farming with money
• Lender is a key partner in successful
modernization plans
• Preparing a business plan for the lender can
help in the approval process
The 5 C’s of Credit
Are Each Addressed in
the Project Plan?
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Capacity
Character
Capital
Collateral
Conditions
• Can you answer every question they may have
before they ask it?
Question
What is the easiest and quickest way to get an
answer of NO from the lender for capital to
modernize your business?
Answer: Not have any records nor have a
plan!
Budgets
• A key part of the project business plan is
budgets
– What you want to develop to help in the
decision making process
– What the lender will look at in evaluating the
loan proposal
Question
• Who has developed a budget that was
correct after the fact?
Answer: Budgets are almost always wrong.
If this is correct, than why develop budgets?
Budgets
• Are you asking all the right questions
• Your best estimates on what things will be
• Involvement from other parties in the development
process
• Something to compare to once starting to make the
change or after change is complete
• Focus management efforts on areas that are
identified to being critical to the success of the
business
Step 1
Cash Flow Projection
• Transition Year
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By month?
When will cash be going out?
When will you need borrow funds?
How much start-up or transition capital will
you need in addition to the capital for the actual
investment?
Step 2
Cash Flow Projection Year 1
• By quarter or for the year
• What do things look like after transition is
complete?
• What is the ability of the business to service
the new debt?
• What other things need to be done once
change is implemented?
Step 3
Average Future Year
• What does the average future year look like?
– Given you historical performance
– Cash flow based, but looking at accrual revenue and
expenses
– Ability to generate a profit
• Support family
• Build net worth
– Ability to service debt over time
– Ability to re-invest
• Difficult to project the future – need to make best
estimates
Step 4
Balance Sheet
• What is the asset and liability situation for
the business?
• What will happen to net worth?
– After transition year
– After first full year
– 2 or 3 more years down the road with average
future year debt service taken into account
Budgets
Key Principles
• Based on the business historical performance
• Realistic and defendable changes in performance
based on changes being made
• All assumptions noted
– Can explain outcome
– Can defend
• Sensitivity analysis
– What is the impact if some key assumption is wrong
– What are the key areas that need to be focused on
Budgets
Key Questions
• Is projected change in cash flow, earnings,
and net worth sufficient to cover the risk?
• If it does not work, where does that leave
the business?
• What ability does the business have to
borrow additional funds if needed?
Preparing Budgets
Resources
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Your local Cornell Cooperative Extension Office
www.agfinance.aem.cornell.edu/Tools
www.nyfarmnet.org
Business consultants
– www.dehmassociates.com
– www.farmcreditwny.com
– www.firstpioneer.com
• Other
Modernizing the Business
• Is a key management function
• Necessary to allow the business to meet the
family’s goals and expectations
• Planning is a key function for successful reinvestment in the business
• Difficult to do planning without historical
performance data
• Budgets are a key management tool utilized to
improve the decision making process